Orion’s funding-offtake deal with Glencore reflects growing scramble for copper, zinc

Next month is shaping up as a seminal one for Orion Minerals (ASX:ORN) and its long pursued ambition to become a copper and zinc producer of note by reviving production at its Prieska project in South Africa’s Northern Cape province.

It is in the middle of next month that Orion expects to complete a non-binding term sheet with the mighty Glencore for $US200-$US250 million in financing and a 100% offtake arrangement for Prieska.

The Glencore agreement was first flagged in September and it has to be said the market has been a bit nervous about its completion.

But Orion put the market at ease on Thursday by reporting that Glencore’s technical and financial due diligence was in its final states, and that legal due diligence was largely completed.

As noted last week there is a scramble on to secure copper concentrates to feed custom smelters as the copper market slips in to deficit supply. As a huge commodities trader, Glencore knowns that more than most.

It also knows that the zinc market is not much different, with the galvanising metal having a similar supply squeeze outlook to copper which is why its price has been super strong recently,

The copper and zinc outlook is what has drawn Glencore to the Prieska project which stands as a low capital intensity redevelopment which Orion plans to ramp up in stages to nameplate production of 22,000tpa of copper and 65,000tpa of zinc at an AISC net of by-product credits of $US1.08/lb.

Orion was trading at 1.7c a share in Thursday’s market for a modest market cap of $135 million. Compare that market cap and Prieska’s production metrics to other base metal development projects on the ASX and it is modest all right.

But the Glencore financing is still pending, and the $A578m capex for the staged return of Prieska – including the need to dewater its deeper levels - needs to be bedded down. Having said that, `South Africa Inc’’ is also getting behind the project.

FireFly Metals:

Talking about things copper, there was a mention here on November 7 that FireFly (ASX:FFM) was close to releasing a resource update on its Green Bay copper-gold project in Newfoundland.

Green Bay was picked up by FireFly just on two years ago when the company was travelling along okay with a market cap of $70m. But exploration success since at Green Bay has fed expectations that major resource growth was ahead for the project, carrying the company to a $1.2 billion market cap.

The 10-bagger-plus performance has just been justified in a big way with FireFly increasing Green Bay’s resource estimate during the week by 51% to 1.74Mt of copper equivalent, at a higher grade to boot.

Then there is the promise of more to come from the six drill rigs continuing to whir away at the mainstay Ming deposit as well as regional targets.

The resource update was announced in a less than ideal market during the week so there was no real surprise that FireFly has continued to trade, for the time being at least, at the same $1.78 a share it was when last mentioned here.

Still, the resource increase was at the high end of expectations. As Canaccord put things in a research note during the week, Green Bay is rapidly emerging as a high-grade, globally significant project in a favourable jurisdiction.

The broker continues to model a 3Mtpa operation supporting an average production profile of 54,000tpa of copper equivalent (46,000tpa of copper and 22,000oz of gold) with upfront capex of $400 million.

But with the resource upgrade and the emergence of a high-grade core at Ming with the potential to enhance project economics, Canaccord has nevertheless increased its share price target from $2.15 to $2.50 a share.

Ausgold:

Ausgold (ASX:AUC) has entered an interesting space ahead of a final investment decision in mid-2026 on its Katanning gold project near the town of the same name in Western Australia’s wheatbelt.

It has become developer and explorer, with the latter having the potential to reshape the project in the years ahead as well as filling the newsflow void that tends to dog developers ahead of first production – the Lassonde curve’s valley of death.

Ausgold the developer remains on track for the FID decision and has just pulled in $80 million in funding from a placement at 80c a share to get cracking on things like paying deposits on long-lead-items and accommodation quarters.

But some of the funds from the placement – and the $10m expected to come in from a share purchase plan at the same price – are earmarked for previously announced land acquisitions and the completion of a 44,000m mine and regional exploration program.

The land acquisition and the stepped up exploration effort go hand in hand as the company was previously unable to gain access to what is considered prime exploration ground. It is why the stated mineral reserve in the DFS (1.25Moz at 1.1g/t) for the project was constrained to remain within the eastern boundary at Katanning.

About 32,000m of drilling at the project is focussed on growing the scale of the open pit and unlocking the underground potential, an as yet untold story at Katanning and something indicated by some untouched EM plates 700m down plunge.

Then there is the drilling that will occur at regional targets which have shown early signs of having the potential to also add to the current known knowns at Katanning as outlined in the June DFS.

Average annual production over an initial 10-year mine life was put at 113,700oz at an AISC of $2,265/oz, with higher grades in the first four years leading to annual out of 140,000oz at an AISC of $2,180/oz.

Using a $4,300/oz base case gold price (it is currently $6,276/oz), payback was estimated at 13 months. The net present value was put at $954m ($1.35 billion at $5,000/oz gold) and the internal rate of return came in at 53% (68% at $5,000/oz).

So as is, Katanning is robust for sure. It’s why the company has been able to pull in $90 million without raising a sweat. The 80c placement and SPP price represented a modest 3.2% discount to the 5-day VWAP.

But is also clear that excitement amongst the investor base about what the all-up 44,000m drilling program will deliver was a factor. Develop and explore in a $6,200-plus Aussie gold market has definite appeal. Results will begin to flow before long.